More Clouds Form Over 340B Program

P&T - October 15, 2017 the original can be found HERE.

Potential Medicare Cut Underlines Need to Rein In Program

Drug manufacturers, and to a lesser extent hospitals, have complained for years about the shortcomings of the 340B Drug Pricing Program, which allows nearly 3,000 hospitals and approximately 10,000 health clinics around the country to buy pharmaceuticals at a deep discount as a means of generating revenue, ostensibly to help lower-income patients and their communities. Complaints from both parties have been validated by the Government Accountability Office (GAO)¹ and the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS)^2,3 and discussed at congressional hearings, where the program’s opaque guidelines and barely visible program integrity efforts have been thoroughly aired.

Yet since Congress established the 340B program in 1992, very little has changed, except for the program opening to many more hospitals and clinics thanks to the 2010 Patient Protection and Affordable Care Act (PPACA). At the latest hearings on the program’s weaknesses, held in July by the U.S. House of Representatives Committee on Energy and Commerce (E&C) Subcommittee on Oversight and Investigations, U.S. Representative Fred Barton (R-Michigan), who has a number of 340B hospitals in his district, said, “I am just trying to educate the subcommittee how screwed up this program is.”⁴

Of course, Congress, having ignored the program’s multiple deficiencies for years, has had a major role in the program’s dysfunction. Congress’ record on legislating improvements for the 340B program is somewhere between negligible and non existent. At the E&C hearings, U.S. Representative Frank Pallone (D-New Jersey), the top Democrat on the committee, said, “Last Congress, this committee worked on a bipartisan basis to try to address the concerns from stakeholders on all sides of this issue in a balanced and measured fashion.”⁴ Nothing came of that effort. Pallone’s spokesman did not respond to an email asking what the barriers were in the last Congress, and whether they are surmountable in this Congress.

But it looks like Democrats and Republicans on the Hill are waking up, and that has a lot to do with the Trump administration. The Centers for Medicare and Medicaid Services (CMS) wants to exact a severe reduction in Medicare reimbursement to hospitals for 340B drugs. That will probably force the House and Senate to confront the program’s problems and make some changes as the price for forcing the CMS to back off either somewhat or fully from its plans to hit some hospitals with revenue losses, a prospect that has hospital lobbyists crawling over Capitol Hill arguing the sky is falling.

How 340B Works

The 340B program allows participating hospitals and clinics to buy drugs at a discount, give them to eligible patients, and then bill the insurers (private companies, Medicare, or Medicaid) for the full price of the drug. That difference between the lower price hospitals pay for a drug and the higher price at which they are reimbursed constitutes an important revenue stream, especially for safety-net hospitals serving large uninsured populations. Medicare currently pays all hospitals, 340B or not, average sales price (ASP) plus 6% for drugs hospitals supply to eligible outpatients, such as oncology drugs provided in outpatient clinics and reimbursed under Medicare’s Part B program. The CMS wants to reduce its reimbursement to 340B hospitals to ASP minus 22.5%.⁵

That proposal has outraged the hospital industry, although only 45% of acute-care hospitals participate in 340B. “The CMS proposal to reduce reimbursement of 340B-purchased drugs has the potential to be very harmful to the sickest and most vulnerable patients by endangering their access to essential health care services,” said Kasey K. Thompson, PharmD, MS, MBA, Chief Operating Officer and Senior Vice President of the American Society of Health–System Pharmacists, in a July press release. “These changes run counter to the statutory intent of the federal 340B program and will incur a steep cost to the people and the organizations that can least afford it.”⁶

The reduction in Part B reimbursement to 340B hospitals would amount to an increase in the funds the CMS would be able to spend on other hospital outpatient services. How that extra money would be distributed has not been decided, and the CMS has asked for suggestions.⁵ But in an attempt to assuage concerns about the impact on the most vulnerable hospitals with the highest percentage of vulnerable patients, the agency is considering targeting recouped funds “to hospitals that treat a large share of indigent patients, especially those patients who are uninsured.” Many 340B hospitals already have large populations of uninsured patients; but some academic centers have smaller percentages as measured by their disproportionate share (DSH) percentage, which is an approximate measure of Medicaid patients.

Despite opposition to the reductions, it appears that key House members believe the price of averting some or all of that reduction will be Congress finally addressing some of the many underlying weaknesses of the 340B program. U.S. Representative Diana DeGette (D-Colorado) said at the hearings, “We probably do need to get more controls and that is why I said in my opening statement that we may need to have more—we need to have more legislative reporting and more transparency because you can’t have a program where nobody knows what’s going on.”⁴

The lack of transparency probably leads to understatement of some of the program’s substantive failings. The CMS argues that the program encourages hospitals to supply more expensive drugs than are necessary to too many patients. Some of the hospitals in the program that are profitable and serve mostly well-off clienteles, such as academic hospitals, earn substantial revenue from the program while providing limited charity care, raising questions about whether they deserve the discounts. Moreover, reports from the GAO establish that, on average, beneficiaries at 340B DSH hospitals were either prescribed more drugs or more expensive drugs than beneficiaries at the other non-340B DSH hospitals. In fact, it is possible for 340B hospitals to supply any billionaire with discount drugs. At the same time, it is perfectly legal for a 340B hospital to charge an uninsured patient full price for a 340B drug. The program is run by the Office of Pharmacy Affairs (OPA) within HHS’s Health Resources and Services Administration (HRSA). The OPA, one of Washington’s backwater agencies, has struggled to administer and enforce jumbled rules with just 16 staffers and a severely anemic $10 million budget.

How a Medicare Reimbursement Reduction Would Affect Hospitals and Patients

Part of the rationale for the proposed Medicare reimbursement reduction, according to Thomas E. Price, MD, Secretary of the HHS, is to reduce the price of pharmaceuticals. Democrats have lampooned that stance, and even some Republicans are skeptical of it. Theoretically, Medicare beneficiaries could see lower prices since they are required to pay a 20% copay for outpatient drugs they receive under Part B. That copayment is based on the Medicare reimbursement rate, which is ASP plus 6%. If that dropped precipitously to ASP minus 22.5%, the “Medicare price” would fall, reducing copayments for Medicare recipients, who are currently paying whopping copayments in some instances.

In the Federal Register notice announcing the prospective change in Medicare outpatient reimbursement in calendar year 2018, the CMS explained, citing an OIG report from November 2015: “Based on an analysis of almost 500 drugs billed in the hospital outpatient setting in 2013, the OIG found that, for 35 drugs, the ‘difference between the Part B amount and the 340B ceiling price was so large that, in a least one quarter of 2013, the beneficiary’s coinsurance alone … was greater than the amount a covered entity spent to acquire the drug.’ ” ⁵

Of course, to the extent a 340B hospital provides discounted drugs to Medicaid patients and then bills Medicaid, that will not affect the consumer prices those patients pay because the reduction to ASP minus 22.5% will not apply to Medicaid reimbursement. Medicaid patients do not pay much, if at all, for their prescription drugs. In an email response, Margaret Kemeny, MD, Director of NYC Health & Hospitals/Queens Cancer Center, a 340B participant, says the majority of her patients do not have insurance. “If they have cancer, we can put them on emergency Medicaid. Very few patients have Medicare,” she writes. “The hospital gets their drugs through 340B. All patients are not charged for the drugs.”

The fact that a high percentage of 340B patients are either uninsured or on Medicaid raises the question of how badly a reduction in Medicare payment would hurt hospitals generally, and 340B hospitals specifically. According to 340B Health, which lobbies for 340B “covered entities,” total sales to 340B covered entities in 2015 were $4.2 billion, or 0.9% of total U.S. drug spending. So the program itself has a minimal impact on drug pricing nationally. Tom Mirga, Editorial Director for 340B Health, says there are no statistics that shed light on the percentage of that $4.2 billion that went to Medicare patients, so it is hard to estimate the impact a reduction of ASP minus 22.5% would have on 340B providers.

One pharmacy manager for a chain of hospitals, who did not want to be identified, said the cut would affect the local 340B hospitals and nationally within his system in a big way, depending upon each site and their percentage of Part B Medicare patients. That varies from hospital to hospital. He guesses it averages perhaps 30%. Another worry is whether commercial insurances will try to negotiate these types of payment rates in the future.

Drug manufacturers have been the loudest complainants about the program. Discounts to 340B hospitals and clinics are mandatory if manufacturers want to sell drugs to state Medicaid programs. They are required to set discounts at whatever level they chose as long as it is below the ceiling price established by HRSA. Would the 600 or so drug manufacturers who participate in the program lower their prices to 340B hospitals if the CMS reduces reimbursement? Nicole Longo, Senior Manager of Public Affairs for the Pharmaceutical Research and Manufacturers of America (PhRMA), declines to answer the question about how reform of the program would affect the prices drug manufacturers charge 340B hospitals. “PhRMA cannot speak to how individual companies might react and whether any companies would adjust drug prices,” she says. For companies to increase their prices to 340B participants, Congress would either have to change the calculation HRSA is required to make to establish ceiling prices for each drug or drug companies now selling below the ceiling price could theoretically raise their price.

“The 340B program is in need of fundamental change that is beyond the scope of the Medicare proposed payment reduction,” Longo says, “and the congressional hearing held in July was an important first step toward modifying the 340B program to ensure it returns to serving the vulnerable or uninsured patients it was intended to help.”

If Congress finally makes an effort to reform the program, it will find a willing partner in the Trump administration beyond Medicare officials determined to slash reimbursement. Krista Pedley, PharmD, MS, CDR, USPHS, Director of the OPA, says, “In the fiscal year [FY] 2018 president’s budget, we did propose to intend to work with Congress on a legislative proposal to ensure the benefit of the program does benefit the low-income uninsured populations.”

340B Expansion Since PPACA

Reducing Medicare reimbursement would save the agency about $900 million a year based on the agency’s preliminary estimates, which could change going forward. Medicare’s proposal in July to severely reduce what it reimburses hospitals is the result of its soaring 340B costs, which are in part the result of Congress’s decision in the PPACA to greatly increase the number of health facilities, including types of hospitals, eligible to participate in the 340B program.

To be eligible for the 340B program, a hospital must be: 1) owned by a state or local government, 2) a public or nonprofit hospital that is formally delegated governmental powers by a state or local government, or 3) a nonprofit hospital under contract with a state or local government to provide services to low-income patients who are not eligible for Medicare or Medicaid. A 2015 report from the Medicare Payment Advisory Commission (MedPac) said regarding the third option for eligibility, for example, that HRSA has not specified criteria for contracts between nonprofit hospitals and state or local governments, such as the amount of care that a hospital must provide to low-income patients under such a contract.⁷ Thus, hospitals with contracts to provide a relatively small amount of care to low-income individuals could be eligible for 340B discounts, which may not have been what HRSA intended.

Several types of hospitals as well as clinics that receive certain federal grants from HHS (e.g., federally qualified health centers and Ryan White grantees) may enroll in the program as covered entities. In addition to DSH hospitals, which were always the key participant in the program since its creation, the PPACA greatly expanded the covered entities eligible to purchase 340B drugs to critical-access hospitals, rural referral centers, sole community hospitals, children’s hospitals, and freestanding cancer hospitals. The number of unique participating covered entities has grown from 3,200 in 2011 to 11,180 in February 2015 to 12,148 in October 2016. The number of hospitals in particular has grown significantly from 591 in 2005 to 1,673 in 2011 to 2,871 as of July 2017.
In addition, the number of contract pharmacies has grown greatly since HRSA issued its 2010 guidance on contract pharmacies.

Contract pharmacies are retail pharmacies in the community that allow a 340B hospital to expand the number of its patients, if properly qualified, who have access to discount drugs. The more patients getting 340B drugs, the more revenue the hospital gets. Prior to 2010, hospitals could only supply 340B drugs from one outpatient pharmacy, typically located in the hospital. In 2011, the GAO reported that while HRSA did not track individual contract pharmacies in use, there were more than 7,000 contract pharmacy arrangements through the program. In its 2018 Budget Justification, HRSA reported that 27% of covered-entity sites have contract pharmacy arrangements, resulting in approximately 18,078 unique pharmacy locations. The OIG found that contract pharmacy arrangements created difficulties for covered entities in preventing the diversion of drugs and duplicate discounts.

Once a hospital has determined it is eligible and has been accepted by HRSA for participation, it supplies discounted drugs to “eligible patients,” a term that has been murky from the start. The definition of “patient” was established in 1996 and includes three criteria:

• The covered entity must have a relationship with the individual, which HRSA defines as maintaining the individual’s health care records;
• The individual receives health care services from a health care professional who is employed by the entity or who provides care under contractual or other arrangements (e.g., referral for consultation), such that responsibility for the individual’s care remains with the entity; and
• The individual receives a service or range of services from the covered entity that is consistent with the service or services for which grant funding or federally qualified health center look–alike status has been provided (this criterion does not apply to hospitals).

HRSA audits from FY 2012 to FY 2016 demonstrate that noncomplying entities violate program requirements in at least one of three ways: duplicate discounts, diversion to ineligible patients and facilities, and incorrect database reporting. In FYs 2012, 2015, and 2016, close to half of HRSA’s audited entities diverted benefits to ineligible patients: 31% of covered entities in FY 2012, 47% of covered entities in FY 2015, and 44% of covered entities in FY 2016 were found to have diverted drugs. Diversion violations reached a 54% high in FY 2014 and FY 2015, when more than 50 audited entities offered drug-pricing benefits to ineligible patients.⁸

HRSA has issued guidance on the definition of “patient.” According to part of the guidance, the individual must receive health care services from a health care professional who is employed by the entity or who provides care under contractual or other arrangements, such that responsibility for the individual’s care remains with the entity.⁹ But the MedPac report of 2015 stated HRSA has not clarified the meaning of “other arrangements” or “responsibility for the individual’s care.”⁷ The lack of specificity in the guidelines for who is an eligible patient makes it possible for covered entities to interpret this term either too broadly or too narrowly, according to the GAO. For example, HRSA has expressed concern that some covered entities may consider individuals to be eligible patients even when the entity does not have actual responsibility for their care.

Drug Pricing

Drug manufacturers have been vocal critics of the elasticity of the 340B program definitions, such as who are eligible patients and whether hospitals are providing adequate charity care. The hospitals, in turn, have criticized drug pricing within the program. HRSA establishes the ceiling price as the difference between the drug’s average manufacturer price and its unit rebate amount (URA). HRSA calculates URAs using a statutory formula that is based on the formula used to calculate Medicaid drug rebates. The statutory formula for the URA varies based on whether the drug is a single-source or innovator drug, a multiple-source drug (e.g., a brand-name drug), a noninnovator multiple-source drug (e.g., a generic drug), or a clotting factor or exclusively pediatric drug. According to statute, HRSA is allowed to disclose ceiling prices to covered entities but not to the general public.

Hospitals buy their drugs either directly from the manufacturer or from a company called Apexus, which manages the 340B Prime Vendor Program (PVP). By pooling the purchasing power of covered entities, Apexus negotiates subceiling prices on many 340B drugs with manufacturers, which allows covered entities to pay less than the ceiling price. By the end of FY 2013, Apexus had more than 7,000 drugs under contract, with an estimated average savings of 10% below the ceiling price. Apexus also negotiates discounts on other pharmacy products and services not eligible for 340B pricing, such as vaccines, billing software, and contract pharmacy vendors. As of April 2014, about 82% of covered entities participated in the PVP and accounted for $5 billion in 340B drug purchases, according to Apexus.⁷ DSH hospitals, children’s hospitals, and freestanding cancer hospitals that participate in 340B are prohibited from purchasing covered outpatient drugs through a group purchasing organization.

What the Hospitals Do With 340B Revenue

The premise of the 340B program is that the covered entities will use the revenue they earn to improve health care for low-income individuals and families in their communities. Mirga of 340B Health says nearly three-quarters (71%) of 340B Health members report that savings from participation in 340B increase their ability to provide free or discounted drugs to low-income patients. But it is not clear what levels of discounts are passed on to whom. No statistics on that exist. There is no denying that poor cancer patients at venues such as Dr. Kemeny’s Queens Cancer Center are able to obtain treatment at rock-bottom prices or for free. But the serious shortcomings of the program are starting to overshadow the “good” the program does.

Author bio: 

Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

Congress Likely to Rein in 340B Drug Discount Program

P&T Journal - October 2015 - for the original online article go HERE or for a PDF go HERE.

The HRSA’s Draft Guidance and a Proposed Rule Give Legislators an Opening

Congress appears to be considering reining in a federal program that lets safety-net hospitals and community clinics use outpatient prescription sales to generate revenue. Repeated negative reports from federal watchdog agencies depict the 340B drug program as running off the rails for numerous reasons. The Health Resources and Services Administration (HRSA), the agency of the Department of Health and Human Services (HHS) that supervises the program, says it does not have the legal authority to provide the kind of oversight that is required. As of February 28, 2015, 11,180 providers were participating in the 340B program, according to HHS.¹ Hospitals buy 78% of the drugs purchased by those providers.

The HRSA Office of Pharmacy Affairs (OPA), which runs the 340B program, published a long-awaited “omnibus” draft guidance in late August ² ostensibly clarifying some key issues that the Government Accountability Office (GAO) and the HHS Office of the Inspector General (OIG) have highlighted as undermining program integrity. But guidance is not enforceable.

“Rulemaking allows us to be more specific about our regulations and gives us stronger enforcement ability,” states Diana Espinosa, HRSA Deputy Administrator. However, a 2014 federal court decision severely limited the OPA’s rulemaking authority, a situation only Congress can correct.

The omnibus draft guidance hit the street at about the same time that 340B players were commenting on a proposed rule from the HRSA having to do with the prices drug companies can charge eligible hospital patients.³ The omnibus draft guidance would limit the patients who would be eligible for discounted drugs. These latest events give Congress, which has long ignored the 340B program, a chance to legislate, taking into account complaints about the draft guidance and proposed rule and giving the OPA a stronger legal footing that can be translated into enforceable regulations.

Stephanie Silverman, spokeswoman for the Alliance for Integrity and Reform of 340B, a group composed of drug companies, pharmacy benefit managers (PBMs), and some patient groups, points out that there was bipartisan support for 340B reform legislation to be included in the 21st Century Cures bill the House passed in July by a vote of 344–77. But a 340B amendment came up late in the game, and legislators dropped it out of fear that stakeholders had not had enough time to vet the language.

Now that the draft guidance is out, “we’ll see where the holes are, and any legislation will be faster-moving,” Silverman states. “There is clearly bipartisan appetite for moving legislation.”

Josh Trent, a staffer at the House Energy and Commerce Committee, which held oversight hearings in March 2015, says he cannot comment on whether 340B remedial legislation is imminent. But the House has approved a new 0.1% fee on participants that is expected to generate $7.5 million in fiscal year 2017 to be used for program integrity (that is, additional audits). This would be added to an annual budget that in fiscal 2015 amounted to about $10 million.

Complaints About 340B

About one-third of the hospitals in the country and a large number of federally funded health clinics use the 340B program to generate revenue, in some cases millions of dollars, by selling discounted prescription drugs at outpatient clinics. Hospitals and clinics love the program. Pharmaceutical manufacturers, PBMs, and others hate it. John J. Castellani, President and CEO of Pharmaceutical Research and Manufacturers of America, says:

Current hospital qualification criteria is misaligned with Congress’ goal of supporting vulnerable patient access to prescription medicines. We owe it to these patients to ensure that the program remains sustainable in the future and, as such, it is critical to revise the eligibility criteria for hospitals and improve accountability and oversight.

The push by drug manufacturers to convince Congress to reform the 340B program gained support in June from a newly released GAO report.⁴ The GAO looked at a sample of 340B hospitals and found they were billing Medicare for higher drug costs under Part B than non-340B hospitals. Part B drugs are typically provided in a physician’s office; a considerable percentage of those drugs are oncology medicines. “This indicates that, on average, beneficiaries at 340B disproportionate-share hospitals were either prescribed more drugs or more expensive drugs than beneficiaries at the other hospitals in GAO’s analysis,” the GAO said.

Hospital groups disputed the GAO’s methodology. Bruce Siegel, MD, CEO of America’s Essential Hospitals (a trade group for safety-net hospitals), said in a statement: “We’re surprised not only by the lack of evidence and data for GAO’s conclusions and recommendations, but also by its suggestion that physicians in our nation’s essential hospitals would ignore patient needs to enrich hospitals.”

For their part, hospitals have complained about manufacturers overcharging and refusing to provide pricing information required by the 2010 Patient Protection and Affordable Care Act (PPACA). One of its provisions mandated that manufacturers report 340B prices to the HHS, which would make those prices public. That has not happened. HRSA’s Espinosa says the new pricing system will be operational in late 2015.

340B Program Details

Congress established the 340B program in 1992. To qualify to sell discounted 340B pharmaceuticals, hospitals and clinics, called “covered entities” in the program’s argot, must serve a large number of uninsured patients. The qualification standard relies on an indirect measure of the percentage of hospital patients covered by Medicaid. Covered entities include safety-net hospitals (referred to as disproportionate-share hospitals) owned or operated by state or local governments, as well as federal grantees such as federally qualified health centers (FQHCs), FQHC look-alikes, family planning clinics, state-operated AIDS drug-assistance programs, Ryan White CARE Act grantees, sexually transmitted disease clinics, and others as identified in the Public Health Service Act.

Drug companies must sell their medicines to 340B out patient pharmacies at discounts of 25% to 50% if they want to sell to state Medicaid programs. The 340B cost for a drug paid by covered entities—sometimes referred to as the 340B ceiling price—is based on a statutory formula and represents the highest price a drug manufacturer may charge covered entities. It is based on the price companies charge Medicaid programs for that drug. Manufacturers are permitted to audit covered entities’ records if they suspect product diversion or multiple discounts are taking place. Occasionally, the formula results in a negative price for a 340B drug. In these cases, HRSA has instructed manufacturers to set the price for that drug at a penny for that quarter—a directive known as HRSA’s penny pricing policy.

The covered entities make their revenue by encouraging qualified patients—and the definition of patient is among the rubs—with commercial insurance to use those 340B pharmacies. There is no family income cap on patient eligibility; millionaires with or without health insurance and the destitute are both eligible to visit 340B pharmacies. The hospital or clinic then bills the insurance company of insured patients for the full price of the drug, and pockets the difference between that price and the discounted price.

Some programs provide 340B drugs to prison inmates, a fact that appeared to take one House subcommittee chairman by surprise. David Bowman, an HRSA spokesman, explains that under current law, correctional facilities are not 340B covered entities eligible to purchase drugs under the 340B Drug Pricing Program. However, these facilities and their patients may be eligible for the 340B program under certain circumstances:

• In the case of hospitals, if the clinic at which the covered entity provides health care services to incarcerated persons is an integral part of the hospital and the clinic is listed as reimbursable on the entity’s most recently filed Medicare cost report, then the clinic may be eligible.
• For other covered entities, if the clinic where the covered entity provides health care services to incarcerated persons is within the scope of its grant, then the clinic may be eligible.

“There are a very small number of 340B covered entities, 29, that currently operate sites within a prison, jail, or detention center,” Bowman says.

Criticism of the Program

The OIG has evaluated and audited the program for more than a decade, focusing on the impact of 340B on federal Medicaid and Medicare spending. From the start, the OIG found numerous deficiencies in HRSA’s oversight of the program.¹ These deficiencies included inaccurate information about which providers were eligible for the discounted prices and a lack of systematic monitoring to ensure that drug manufacturers were charging 340B providers the correct prices. In the latter case, confidentiality protections prevented HRSA from sharing the ceiling prices with the 340B providers, leaving them in the dark as to whether they were being charged correctly by drug manufacturers. The PPACA provision was supposed to eliminate that problem.

The lack of price transparency can result in the federal government and states paying more for drugs for Medicaid patients than otherwise necessary. Medicaid patients are eligible to receive 340B drugs. States pay for 340B-purchased drugs when 340B providers dispense them to Medicaid patients. Many states have established Medicaid policies to pay for 340B-purchased drugs at 340B providers’ actual acquisition cost; these policies ensure that Medicaid realizes savings from the discounted 340B prices. However, OIG found that without access to 340B ceiling prices, states are unable to implement automated, prepayment edits to enforce these policies. A decade ago, the OIG found that 14% of prices charged by drug companies were too high, resulting in overcharges of $3.9 million a month.⁵ That report has never been updated.

Apart from the impact of opaque and excess pricing on Medicaid expenditures, the increasing number of contract pharmacies used by covered entities—first allowed by HRSA in 2010—has made it difficult for state Medicaid programs to determine which 340B claims are actually eligible for reimbursement at the higher rate. A corollary to this problem is that confusion over claims can result in drug manufacturers having to offer discounts for the same patient and drug twice. Duplicate discounts occur when drug manufacturers pay state Medicaid agencies rebates under the Medicaid drug rebate program on drugs they sold at the already-discounted 340B price.

The contract pharmacy expansion the OPA allowed in 2010 also complicates a pharmacy’s ability to know whether a particular customer is eligible for 340B pricing. The pre-2010 guidance specifies that an individual is an eligible patient only if he or she has an established relationship with the 340B provider, he or she receives health care services from the 340B provider, and those services are consistent with the service or range of services for which federal funding is being granted. That determination was much easier to make prior to 2010, when eligible patients could obtain 340B drugs only from the hospital’s inpatient pharmacy.

Now covered entities send their ostensibly eligible patients to retail pharmacies, which have a much more difficult time determining whether their customer is 340B-eligible. Most do that after the fact, often matching information from the 340B providers, such as patient and prescriber lists, to their dispensing data. “Depending on the interpretation of HRSA’s patient definition, some 340B provider eligibility determinations would be considered diversion and others would not,” says Ann Maxwell, OIG’s Assistant Inspector General for Evaluation and Inspections.

The GAO has focused more on the impact of 340B idiosyncrasies on Medicare spending. The GAO’s latest report in June reported higher spending by Medicare for drugs sold to patients at 340B hospitals than at non-340B hospitals.⁴ The Centers for Medicare and Medicaid Services, which administers the  Medicare program, uses a statutorily defined formula to pay hospitals for drugs at set rates regardless of hospitals’ costs for acquiring the drugs. The report states:

Therefore, there is a financial incentive at hospitals participating in the 340B program to prescribe more drugs or more expensive drugs to Medicare beneficiaries. Unnecessary spending has negative implications, not just for the Medicare program, but for Medicare beneficiaries as well, who would be financially liable for larger copayments as a result of receiving more drugs or more expensive drugs. In addition, this raises potential concerns about the appropriateness of the health care provided to these beneficiaries.

“The federal government doesn’t know where the dollars are going,” says U.S. Representative Renee Ellmers (R-North Carolina). She cites a study by the IMS Institute for Healthcare Informatics that found the cost of 10 chemotherapy infusion drugs was 189% higher at the 340B hospitals than at private physicians’ offices.⁶

The HRSA in many cases does not have the legal authority to respond to these programmatic weaknesses. In May 2014, a ruling by the U.S. District Court for the District of Columbia said HRSA could issue legally binding, enforceable regulations in only three areas, which did not include the definition of a patient, participation of contract pharmacies, and hospital participation in the program. U.S. Representative Fred Upton (R-Michigan), Chairman of the House Energy and Commerce Committee, says HRSA’s inability to issue regulations is “hampering the ability of the agency to manage the program as we’d like.”

Congress Becomes More Attentive to 340B

The GAO and OIG reports, with their negative implications for federal health care spending, along with the federal court decision, have apparently forced Congress to revisit a program it has long ignored. Moreover, the PPACA’s support for expansion of state Medicaid programs—28 states have done that so far—means that far fewer poor individuals are uninsured and that uncompensated care at hospitals is falling sharply as a result.

At hearings in March—the first 340B oversight hearings the committee had held since 2005—U.S. Representative Joe Pitts (R-Pennsylvania), Chairman of the House Energy and Commerce health subcommittee, asked Debbie Draper, Director of Health Care at the GAO, whether the PPACA’s Medicaid expansion means the access of hospitals to the 340B program should be circumscribed. Her response: “That is an interesting question, and difficult to answer because much has changed in the health care landscape the last few years. The bigger question is, what is the intent of 340B? There is lack of clarity around that.”  HRSA’s Espinosa agrees. “The law doesn’t specify how the savings hospitals earn from 340B should be used,” she says.

Aside from the kind of technical, definitional, and accounting shortcomings plaguing the program, there is also the matter of the program’s objective. When Congress established the 340B program in 1992, the rationale was that hospitals and community clinics serving low-income patients needed a way to stretch scarce resources, allowing them to reach more eligible patients and provide more comprehensive services. Rather than set up a grant program using federal dollars, Congress forced drug manufacturers to sell medications at a discounted price and allowed hospitals to raise revenue via the differential between the discounted price and the price they billed insurance companies when an insured person purchased those drugs. It was not clear, however, which patients were eligible to purchase the discounted drugs, and whether the program’s purpose was to help the poor and uninsured afford expensive drugs or to allow hospitals in poorer communities to fund their operations.

The GAO’s Maxwell, when asked by Pitts about the impact of the reduction in uncompensated hospital care, replied, “The bigger problem is the intent of the 340B program.” Echoing Draper, she added: “There is a lack of clarity on that.”

This lack of clarity looms larger every year as the program expands almost geometrically, with the result that both hospitals, for their reasons, and drug manufacturers, for their reasons, complain louder and louder about unqualified patients using the program and about rogue drug company pricing. In 2010, Congress in the PPACA allowed states to expand the number of Medicaid patients they serve, which had the contradictory effect of first boosting the number of hospitals that are eligible (because eligibility is tied loosely to a hospital’s Medicaid population) and simultaneously reducing uncompensated hospital care.

The PPACA also expanded the kinds of health care settings that could qualify for the 340B program to: 1) certain children’s and free-standing cancer hospitals excluded from the Medicare prospective payment system; 2) critical-access hospitals; and 3) certain rural referral centers and sole community hospitals. In 2011, the number of hospitals participating in the program was nearly three times what it was in 2005, and the number of these organizations, including their affiliated sites, was close to four times what it was in 2005, according to the GAO. Hospitals’ participation in the 340B program has grown faster than that of federal grantees; the number of participants increased almost threefold from 2005 to 2011. Disproportionate-share hospitals alone represent about 75% of all 340B drug purchases.

In 2010, HRSA pumped up the program by allowing hospitals to sell discounted drugs from outpatient pharmacies located off a hospital’s main grounds. Before, sales were only allowed where a pharmacy was located next to an inpatient facility.

HRSA’s Response

It wouldn’t be fair to blame the OPA entirely, or even mostly, for the shortcomings of the 340B program. Congress provided some weak underpinnings initially and then piled more program complexities on top of that shaky foundation. Congressional appropriations for the program have been anemic, particularly until 2009, when the program’s budget was $1.5 million. It has risen to $10 million a year, but that still makes it one of the worst-funded federal agencies with enforcement responsibilities. The program’s visibility is almost nil. The OPA, whose sole responsibility is the 340B program, isn’t even listed with the other “offices” on the HRSA organizational chart.

Additional congressional appropriations over the past few years have allowed the OPA to begin auditing—mostly hospitals and not many drug manufacturers. The OPA has conducted about 50 to 100 audits a year since fiscal 2011, according to its website. Looking through the summaries of the most recent audits in fiscal 2015, the vast majority of hospitals that were audited either terminated their contract pharmacies or repaid manufacturers because of diversion of 340B drugs to unqualified patients.

Some of that diversion will go away based on the proposed restrictions in the draft guidance on patients eligible for 340B drugs. Hospital groups aren’t happy about the new restrictions. 340B Health, a trade group representing safety-net hospitals who take advantage of the program, says it hopes “safety-net health care providers will not find themselves limited in their ability to meet their mission to treat the underserved.” So there will be pushback, undoubtedly, against the proposed definitional changes to “patient.” And in any case, whatever the language in the final guidance, it will still just be guidance. The HHS won’t be able to enforce it unless Congress encodes the changes into law.

Author bio: 

Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.